Markets are currently under the impression that the US economy is about to hit the brakes. A couple of rate cuts from the US Fed are already discounted for this year. Yet the market does not see a US slowdown as having serious global consequences rate cuts are not really priced in anywhere else (see figure 1). There are two ways in which the market's view can prove wrong: Either the USA can pull the rest of the world down to low levels of growth. Or the rest of the world can pull up the USA and the global expansion can carry on with undiminished vigour.

Determining whether it is the one or the other will be developments in the USA in the coming months. There are two sets of data, in particular, that have given the market (and us) reason to worry of late: a renewed fall in new home sales and very weak data on capital goods orders. Both involve volatile data and much uncer-tainty. But whether the negative signals in these two series are "correct" or "wrong" is key. There is an easy and good way to monitor the issue. If the negative sig-nal in new home sales is to be correct, then the weekly mortgage application figures will have to fall in the coming weeks. And if investments really are as weak as the order data suggest, the labour market will have to soften and weekly jobless claims rise. In other words these two weekly US indicators can be used as a lit-mus test for the global economy - and the market's views - in the time ahead.